The authoritative assessment methodology for compensation was reaffirmed by the Land Court of Queensland in a recent decision which also raised concerns about the ability of an expert witness to give independent advice to the court.

Delivered on May 27, 2021 by member Stilgoe OAM, Hail Creek Coal Holding Pty Limited & Ors v Michelmore [2021] QLC 19 was a determination of the compensation payable for the granting of a mining lease under the Mineral Resources Act 1989 (Qld) (ARM) which was based on the methodologies and credibility of the parties’ respective valuation experts. The decision has significant benefits for both mining lease applicants and landowners who cannot amicably determine their own compensation assessments.

One field, two different areas of expertise

Hail Creek Coal Holding Pty Limited (the applicant) manages the Hail Creek mine in the Bowen Basin on a mining lease adjacent to the subject land. The land referred to by the respondent, which includes a mining camp of 1,056 rooms, was initially leased to a former holder of a mining lease until 2023. The applicant, together with its participants in the joint venture, filed for a 20-year mining lease on the land subject, but she and the Respondent could not agree on compensation.

The plaintiff’s expert appraisal witness stated that the value of the land in question was $ 530,530; that of the respondent, $ 7 million.

Expertise capacity and independence

Before examining the competing methods of valuing the compensation payable to the Respondent, Member Stilgoe OAM noted problems with the Respondent’s expert appraisal evidence. The evidence produced during the hearing included a historical invoice issued by the Respondent’s appraiser for work not performed by the Respondent’s appraiser and therefore not payable to the Respondent’s appraiser. The invoice was issued to the Respondent just prior to the Respondent’s claim for loss and expense compensation under paragraph 281 (3) (a) (vi) of the MRA. The Court noted that the situation regarding the invoice was “strange” and “disturbing”, and led the Court to take the unusual step of advising the respondent’s valuation expert of the potential ramifications of certain responses relating to the invoice, which led the expert to choose to claim the privilege.

As a result, the Court raised concerns about the ability of the particular expert to provide independent advice to the Court and determined that he would give “little or no weight” to his testimony in determining the case. compensation. Further, the Court reiterated that experts occupy a special position as witnesses in such cases and that their primary duty is to the Court rather than to any party or person paying their fees or expenses.

Preferred valuation method

Notwithstanding the question of the weight given to the expert appraisal evidence, the Court took into consideration the position of the two experts on their different approaches to appraisal. The applicant relied on the direct comparison approach, summarized by Land Appeal Court decision WM & TJ Fischer v Valuations General (1983) 9 QLCR 44:

“It has always been held by the courts, whose decision is binding on this tribunal, that the best standard of value must be found in sales of comparable properties, preferably unimproved or slightly improved, on the open market as close as possible to the valuation date “.

Although both valuation experts agreed that the direct comparison method was generally preferred, the unique characteristics of the land in question (lack of comparable sales with similar demand for accommodation, existing mining camp facilities, or existing development approval) created difficulties in reaching consensus. The fact that the request to purchase the site came from someone other than the mine operator (given the proximity to the Hail Creek mine and its current hosting function as a mining camp) would have a significant impact on value. It was also observed that most of the comparable sales were made during the mining boom.

Departing from the method of the direct comparison approach, the Respondent’s expert sought to rely on two alternative approaches. The first was the methodology articulated in Vyicherla Naryana Gajapatirajup Bahadur Garu v Revenue Divisional Officer, Vizagapatam [1939] CA 302 (Raja Approach): “The potential of the land acquired, which can only be exploited by the acquiring authority, must be taken into account in the assessment of this land for the purposes of assessing compensation”. This approach would greatly increase the value of the land since the location of the mining camp is likely only of value to the applicant in a form other than pasture. This Raja approach was not accepted beyond its general principle, which the court noted is already contemplated by the direct comparison method.

The respondent also sought to appraise the land using the net present value of the potential rent (VAN approach), which was also rejected by the Court because it would not improve the problems of the direct comparison method and, ultimately, “mirror and amplify” the deficiencies caused by the lack of comparable sales in such a way. satisfactory.

Application of the direct comparison method

The highest and best use of land as a settlement village is inherently much more lucrative than its only other alternative as grazing land, the valuation of the latter of which was agreed between the parties at 189 $ 475. The Court emphasized that there are a range of risks which must be taken into account when determining the current assessment of compensation:

• there will be no mining camp for the duration of the mining lease;
• the camp may not have the intended occupation;
• the camp will not produce the expected income stream;
• no other entity will be interested in acquiring the camp; and
• the current development approval will not meet the needs of another operator.

The Applicant’s appraiser looked at comparable sales of land and argued that a premium of between 100% and 250% over the value of the land as pasture was satisfactory. By adopting the 250% premium, the Applicant’s assessor submitted that the compensation should be set at $ 482,230 to $ 3,500 / ha. Including the 10% mark-up fee legislated by the MRA, this value came to $ 530,530.

When the Court asked the respondent’s expert assessor to use the approach of the applicant’s expert assessor with regard to the premium to be applied, the respondent’s expert assessor suggested that it award a premium of 500% to the value of the pasture, but in To arrive at a valuation of $ 7 million, the Court noted that the respondent’s valuation expert would have to apply a premium of 3,694%, which it described as “grossly overvalued”.

The respondent’s assessment expert applied the direct comparison approach differently, using the methodology to formulate a rate $ / ha, arriving at a value of $ 200,000 / ha. The Court concluded that the plaintiff’s valuation expert’s approach to assessing the premium a buyer will pay for the prospect of developing mining housing is a more accurate assessment of the decision-making process than a hypothetical purchase is likely to be. ‘undertake, and this approach “does not suffer from an attempt to extract comparable values ​​from incomparable sales”.

The Court preferred the latter approach and insisted that the plaintiff being the sole purchaser “does not justify an exorbitant valuation”.

Coming to this point of view, the Court reiterated the classic definition of value from High Court Spencer v The Commonwealth (1907) 5 CLR 418, namely that it is “a sale by voluntary negotiation between the seller and the buyer, willing to trade, but neither of them is so eager to do so that he would disregard all ordinary commercial considerations ”.

Methodology for assessing compensation for mining leases: points to remember

• The direct comparison method remains the authoritative approach for evaluating compensation in the Land Court of Queensland, even in situations where there is a dearth of comparable sales that valuation experts can rely on when making decisions. their evaluations.
• Appraisals should not attempt to derive comparable values ​​from incomparable sales, and an alternative approach is to assess comparable premiums paid above the agreed market value.
• Practitioners and expert witnesses should be aware of their obligations under Part 5 of the Land Court Rules 2000 (Qld) and the relevant practice guidelines, which define the duties of expert witnesses. More specifically, anyone appearing in these proceedings as an expert must assist the court, and this obligation overrides any obligation they may have towards the party or person paying their fees or expenses.
• Remember that with all mining lease compensation matters, a mark-up fee of at least 10% is added to the compensation payable, in accordance with section 281 (4) (e) of the MRA , so holders of mining leases must take these costs into account when calculating compensation. .
• A decision in April underscored the importance for landowners to disclose information that could materially affect the amount of compensation claimed in compensation proceedings under the Mineral Resources Act 2014 and energy (common provisions) (Qld).